Partner - Head of Litigation UAE, Ibrahim & Partners
The United Arab Emirates (UAE) is the financial hub of the Middle East and acts as a nexus that connects North Africa, European and Asia markets. Additionally, the favourable tax regime attracts corporations and professionals from all around the world to do business in the UAE. With all this overwhelming business, debt recovery become a burden on companies in order to survive and maintain their cash flow.
In the last few years, many companies as well as banks were suffering of financial distress as a result of debt recovery issues. With this becoming one of the most hot topics in the market, on 16 December 2018, Cabinet Resolution No.57 of 2018 ("Cabinet Resolution") was published in the official Gazette and came into force two months after its publication date. The effect of this Cabinet Resolution was, amongst other numerous amendments, to introduce the ‘Payment Order’ regime that encompasses quick and cost effective methods of recovering debt.
However, the strict requirements for corporations means that it may not always be applicable to the creditor. However, if the requirements are met, then the creditor can seek swift orders through ex-party application that demand repayment from the debtor. The Civil Litigation route is rather draconian and should be opted for when the creditor is seeking long term debt recovery options. The process is rather lengthy but in general, a claim is time-barred after 15 years unless the commercial transaction falls under Law No. 18 of 1993 regarding Commercial procedures.
In this article we plan to cover three strategic debt recovery routes:
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Payment Orders |
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| Requirements to Apply | Process to Apply | Costs | Prospect of Success |
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Creditor must have clear and unequivocal written acknowledgement of debt by the debtor.
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Submission of ex-party application to the summary judge at the court where the debtor address is located. |
6% of total value claimed with a cap at 40,000 AED. |
Very high threshold as creditor need to satisfy all prerequisites before applying. |
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Debt must be fix amount, due and payable and proven via writing evidence (invoices, statement of account, cheques etc. …)
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After three days of filing, judge to grant/deny order sought. - If granted – creditor to follow ordinary procedures of execution of a judgement. - If denied – creditor has the right to resort to the normal civil litigation route via the Court of First Instance. |
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| Creditor to officially serve the debtor with a demand legal notice claiming payment of the outstanding debt, and allowing the debtor at least five days to comply |
Debtor has 15 days from judgement date to log appeal.
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Court Fees are non-refundable and separate from legal fees |
If Creditors meet requirements, then cost and time effective. |
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Civil Litigation |
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| Requirements to Apply | Process to Apply | Costs | Prospect of Success |
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Creditors can rely on contractual repayment obligations through using the Civil Code. (Article 246 and 710) |
Creditor to file a case before the Court of First Instance. Case to be served on the debtor and first hearing scheduled within 15 days. · Court to appoint an expert, based on its discretionary power · Expert to submit its report with 90 days maximum. · Hearings to continue until judge has sufficient information - Each hearing spaced two/three weeks apart. · Following judgement the losing party ah the right of appeal within 30 days of judgement date. |
6% of total value claimed with a cap at 40,000 AED. |
This method is costly and time consuming. |
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Creditors can apply for an order that declares the debtor bankrupt. (Federal Law No. 9 of 2016 on Bankruptcy) |
Court Fees are non-refundable and separate from legal fees. |
Should be used for long term debt recovery. |
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| Has wide margins of relief. | |||
To avoid the time, cost and complexity normally associated with litigation, we always recommend exploring the injunctive relief/precautionary measures. These will necessarily be determined on a case-by-case basis. Please see non-exhaustive list of examples below.
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Precautionary Measures |
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| Description | Relief | Challenges? | |
| Corporate Guarantors/Bank Guarantees | Creditor to check if loan repayment is guaranteed (e.g. by bank or another debtor). In banking claims, this is a very common approach. | Guarantor comes under obligation to repay the debt, where creditor submits required documents/fulfils relevant conditions. | Claim against guarantor must be issued within six-month period from due date of payment. Claim can also only be in respect of a fixed amount debts. All monies guarantees are not easily enforceable in the UAE. |
| Freezing Orders | Freezing orders prohibit a debtor from utilising assets to prevent debtor from frustrating repayment claim. | Creditor ensures, to maximum extent possible, that debt recovery can occur. Even where money is not paid, creditor can request an order for forced sale of attached assets if a final judgement is secured. | Creditor must satisfy various condition for the summary court to approve freezing order petition (i.e. urgency, acknowledgment of debt, risk of dissipation of debt). |
| Civil Travel Bans | Travel bans can prevent a debtor from leaving or (re)entering the UAE. | Travel bans protect creditors by applying significant pressure on debtors to fulfil loan payment obligations. It will also prevent debtor from escaping prosecution by the relevant courts (in line with debt recovery routes). | Various condition must be satisfied before a creditor applies to issue a travel ban. |
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